By: Lance T. Denha, Esq.
Oftentimes, when debtors think of a Chapter 7 bankruptcy, some are under the impression that any and all debts at the time of filing for a Chapter 7 Bankruptcy are wiped out. While this is true to a certain extent, some debts indeed remain valid and collectable, just as they would before one filed for bankruptcy.
When the Bankruptcy Court grants a discharge, they do not specify the debts which have been discharged. Instead a form from the court is provided stating that the debtor has received a discharged. To assist a debtor, below is a brief description of the kinds of debts that may be discharged and others that typically survive a bankruptcy.
DEBTS THAT WILL BE DISCHARGED
• Credit Card Debts – With a few exceptions for cases which involve fraud or luxury purchases immediately prior to the filing of a bankruptcy, credit card debts are usually discharged.
• Medical Bills – Medical Bills will be discharged at the end of a bankruptcy. This is extremely important for those who do not have medical insurance or other access to affordable medical care and are forced to rely upon emergency rooms as their primary care.
• Lawsuit Judgments – Money judgments are typically always dischargeable in bankruptcy irrespective of the facts which led to such judgment in the first place. While there are a few exceptions, in the vast majority of cases, money judgments are discharged.
• Debts Arising From Car Accidents – If the car accident was the result of negligence (i.e. careless driving or failing to drive in a prudent manner), the debt arising from the accident can be discharged in bankruptcy. However, if the car accident results from reckless driving (i.e. willful or malicious acts as well as drunk driving), it will not be discharged under Bankruptcy.
• Obligations Under Leases or Contracts – Typically, filing for bankruptcy will convert a lease or contractual obligation into a dischargeable debt, unless the trustee overseeing the bankruptcy feels as though the lease or contract will produce money to pay unsecured creditors.
• Personal Loans and Promissory Notes – Unless a creditor can prove a debtor acted fraudulently, money borrowed in exchange for a promissory note or other type of promise to pay is dischargeable in bankruptcy court.
DEBTS THAT SURVIVE BANKRUPTCY
• Domestic Support Obligations – Obligations such as child support, alimony, and any other debt that is in the nature of alimony, maintenance, or support are considered non dischargeable debt in a bankruptcy.
• Fines, Penalties and Restitution – Fines, penalties or restitution that a federal, state, or local government issued to punish a debtor for violating a law is considered non dischargeable.
• Certain Tax Debts – Taxes associated with regular income debts are dischargeable if they are old enough and meet specific standards imposed by the Bankruptcy Code. With that being said, other types of taxes, such as Fraudulent income taxes( i.e. failing to file tax return or intentionally avoided tax obligations) and Property Taxes (unless it became due more than a year before filing for bankruptcy) are non dischargeable. Even if the property tax is discharged, a tax lien on your property will remain. Therefore the debtor will still be under obligation to pay off the lien before transferring the property to establish clear title.
• Intoxicated Driving Debts – As discussed earlier, if an accident occurs while a debtor was driving under the influence of alcohol or drugs, any debts resulting from the incident are non- dischargeable.
• Condominium or Homeowners Association Fees- These types of fees can be listed under both categories, however the general rule is any fees assessed after the bankruptcy filing date by an association for condominium, housing cooperative or lot in a homeownership association cannot be discharged in a bankruptcy. However any fees associated with the aforementioned prior to filing bankruptcy will be discharged.
• Debt for Loans From a Retirement Plan – If a debtor borrows money from a retirement plan that qualifies under IRS rules for tax-deferred status, such debtor will not be able to discharge this debt under a bankruptcy. The rationale behind this is only debts one owes to another person or entity may be discharged in a bankruptcy, however money borrowed by one’s self (i.e. retirement plans such as a 401(k)) from a retirement plan are not considered dischargeable. It should be noted that the rules are different under Chapter 13 Bankruptcy.
• Any Debts Not Discharged in Previous Bankruptcy – Debtors remain unable to discharge any debts that he/she may have tried to discharge in an earlier bankruptcy.